There have been many candidates nominated for the role of villain in the tale of the destruction of Lehman Brothers. Short-sellers, lackadaisical regulators, and rumour-mongers have all been targeted by those seeking to displace blame from its natural home: the management of Lehman. But the huge article on Lehman’s collapse in New York Magazine this week undermines all those displacement attempts.
The article makes clear that while Lehman Brothers chief executive Dick Fuld was using his powers of intimidation and influence with the Treasury Department to quiet “rumour mongers,” he was running a firm in a financial condition that was even worse than critics suspected. Even while he and his deputies sought to assure investors and counterparties that all was well aboard the good ship Lehman, the firm’s own executives were discovering that the balance sheet told a very different tale.
In June, after Dick Fuld was forced by a rebellion of his own executives to fire longtime ally Dick Gregory and Erin Callan, who were respectively the president and chief financial officer of the firm, Bart McDade was brought in as president. With this new set of eyes on the firm’s balance sheet, the truth began to emerge.
“Bart McDade brought in a battalion of other analysts, and they didn’t like what they saw. Once McDade’s team got a look at the books, they were shocked,” Steve Fishman writes.
But even while Lehman was discovering its dire condition, it continued to claim that it was a healthy institution. No disclosures about these discoveries were forthcoming to investors. If anything, this article seems to imply that there wasn’t enough distrust of Lehman in the markets. The firm knew it was in shocking condition but kept right on insisting the opposite.